Economics – Government and the macroeconomy - Fiscal policy | e-Consult
Government and the macroeconomy - Fiscal policy (1 questions)
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A government surplus occurs when the government's revenue exceeds its expenditure in a given period. In simpler terms, the government receives more money than it spends.
A government deficit occurs when the government's expenditure exceeds its revenue in a given period. This means the government is spending more money than it is taking in.
Potential Economic Consequences:
- Budget Surplus:
- Reduced National Debt: A surplus allows the government to pay down its existing national debt, reducing future interest payments.
- Increased Investment: The government can use the surplus to invest in public services, infrastructure, or other areas that can boost economic growth.
- Lower Interest Rates: A surplus can lead to lower borrowing needs, potentially putting downward pressure on interest rates.
- Budget Deficit:
- Increased National Debt: A deficit leads to an increase in the national debt, which can create future financial burdens.
- Inflation: If the government finances a deficit by printing money, it can lead to inflation.
- Higher Interest Rates: A large deficit can increase the demand for loanable funds, potentially leading to higher interest rates.
- Crowding Out: Government borrowing to finance a deficit can "crowd out" private investment by increasing interest rates.